Tuesday, November 4, 2014

Budget Boot Camp - Cutting Expenses (It's Not What You Think)

This is not going to be a regular list of suggestions about dropping cable and eating out less. If you've read one of those articles, you've read them all (our list is at the bottom of this link). The truth is, if there was an easy way to save money, you'd have already done it. Who doesn't like saving money? The purpose of this article is to help you figure out what matters to you and to convince you to let the rest go. Budgeting is not about blindly slashing as many expenses as possible, it's about making conscious choices about what matters most to you personally and spending accordingly. By the time you're done reading this, you'll know exactly what changes (if any) you need to make to your spending.

Step 1: What Does "Rich" Mean To You?

One of the best takeaways I got from the book I Will Teach You To Be Rich is that it's important to first figure out what "being rich" means to you. If you were rich, what would it look like? Maybe you want be able to take a trip to Disneyland every year. Maybe you couldn't care less about vacations, you just want a home with a yard. Or all of your kids in piano and dance lessons. Or a weekly date night. Maybe what you really want is to have a room full of gold coins you can swim in daily à la Scrooge McDuck. Whatever your goals are, write them down. The more specific, the better. It's okay to pick more than one, but make sure you order them from most to least important. Being rich isn't about having it all, it's about having what matters most. Note: I know "Saving for Retirement" probably wasn't on your list of financial priorities, but unless one of your goals was to "work like a dog until the day I die," you should go ahead and add retirement savings to your list. How much should you be saving towards retirement? I'm going to throw out the guideline 15% of your income and refer to my favorite article about saving for retirement.

Step 2: Figure Out Per-Month Cost

For each financial goal, figure out what it would cost you per month.Example: Save for Retirement.
Annual income: $50,000 x 15% = $7,500 per year / 12 months = $625 per month.

Example: Disneyland Trip
$1,200 / 12 months = $100 per month. (I'll be honest--I just threw $1,200 out there. I live in CA and my sister works for Disney, so feel free to hate me for how economical Disneyland trips are for us).

From our last Disney trip. Yes, I'm a grown adult and yes I wore that crown in the park.

Step 3: Target Expenses to Eliminate

Now whip out your budget and figure out where you stand. How close are you to being able to achieve your goal(s)? What could you do to make it work? For some reason, trying to cut expenses arbitrarily (just because it's good to cut expenses) isn't very motivating. But if you have something specific you're working towards, cutting expenses suddenly becomes a meaningful, motivating goal.Method 1: Pick Some Easy Targets
Look are your budget line by line to analyze your spending and then pick some easy targets. Maybe you really want that Disneyland trip and you're spending $125 a month on random shopping trips. Done. Now the next time you want to buy yet another purse you don't need, you're not denying yourself by not buying it, you're making a conscious choice to go to Disneyland instead.Method 2: Make Some Meaningful Trade-offs
Maybe you'd be willing to ditch cable so you can put your kid in gymnastics. It's all about trade-offs and priorities. So pick your goals, pick which expenses you're willing to cut back on or eliminate and get to work.When You're Out of Expenses to Cut
Maybe you are already in debt or you've already eliminated all discretionary spending (eating out, shopping, clothes, vacations, memberships, cell phones, etc.). Now it's time to look at the bigger expenses. Can you live in a more affordable apartment or home? Or maybe it's time to look at last month's Budget Boot Camp ideas for increasing income. It may take putting a long-term plan in place, such a getting additional education for a better job, but you can make it work.

Have any questions? Need help figuring out how to reach your goals? Comment on our blog here and we'll get back to you ASAP.

p.s. My product recommendation of the month is my mattress pad heater because it's getting chilly out there. I've had mine for years and years and I'm still obsessed.

IRS regulations require us to advise you that, unless otherwise specifically noted, any federal tax advice in this communication (including any attachments, enclosures, or other accompanying materials) was not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of avoiding penalties; furthermore, this communication was not intended or written to support the promotion or marketing of any of the transactions or matters it addresses.

The information presented is to the best of our knowledge, but does not specifically take into account your personal situation. We cannot provide the specific guidance that your personal tax advisor can. We are not responsible for the results of reliance on the contents of this blog and articles herein.

Money Hip Mamas is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.